Will Greece Default on it's debt?

[Captain Kremmen]

There was a catastrophic sale of German bonds the day before yesterday, which I felt would drive German stocks down. They have fallen slightly, but only because the market thinks that it will drive Germany close to a pan-Eurozone consolidation of debt. If Germany goes for it, France will follow.
You have to have a very twisted mind to predict market responses.
Bad news is sometimes good news.

On reflection, that is right.
I don't think it will take long now for Germany to reach an inevitable conclusion.
They cannot treat the Euro as if it was their own sovereign currency.

As regards extra controls. Yes, of course, they are vital.

 

[Billy T]

"... Gonzalez-Paramo said there is a need for “more economic and financial integration for the euro area, with a significant transfer of sovereignty to the EMU level over fiscal, structural and financial policies.”

He said the ECB’s role is to preserve price stability and the purchasing power of the euro, not to be a lender of last resort for governments.

Market participants who call for that “may care only about the nominal value of their assets and the need to avoid losses,” Gonzalez-Paramo said. - “Whether or not the underlying asset -- our currency as store of value -- has been depreciated seems unimportant to them. ..."

from: http://www.bloomberg.com/news/2011-...d-step-toward-fiscal-union-to-end-crisis.html

In some ways salvation for the Euro via greater political union is an option the US no longer has - the US's only remaining option is for the FED to print money (QE3, etc). Sarkozy & Merkel prefer the ECB do more of that, like the FED does, but do seem willing /wanting more political unity too. Even though giving up some national sovernity is hard for politicians to do. Possibly that is more acceptable to Germany as it knows well what printing press money can do If the ECB were to try to solve the problem by its printing presses. (The Idea did come from Merkel and Sarkozy was pressured to accept it.)*

Gonzalez-Paramo certainly does NOT wants the ECB to fire up the printing presses 24/7 but solve the problem politically - control the "Borrow, spend-now, pay-later" PIIGS. That however is the only choice left to the US. It got the benefits of political unity, federal bonds, etc. 200+ years ago.

-------------
* French pride and arrogance is second only to that of Americans.

 

[Captain Kremmen]

The Greeks have taken their halving of debt, but that is temporary.
It would still take the Greeks ten years to get to the stage of any appreciable growth, keeping the Euro.

The crunch won't take ten years.
If things stayed as they are, Germany would move painfully ahead, and the majority would remain in Limbo, or reverse.
It won't happen. Germany either needs to "bite the bullet" or ditch the currency as a failure.

As somebody said the other day, as Churchill said of the Americans:
They will try every other option, but eventually they will do the right thing.

Thank God, or Gordon Brown, that the UK never adopted the Euro.

 

[Billy T]

Here: http://www.stateofthemarkets.com/re.../2/0/76a70aec26023d7790b3da6d814ba208a9d2c8f1

is suggestion that the German bond did not get full set of buyers because there is progress towards a more unified political structure with "euro bonds" soon to come, which would be paying about twice the interest of Germany's bonds. I.e. don't tie up your money at lower rate when soon, all euro zone countries, Germany included, will be backing the new "euro bonds" - probably on the hook to make good any defaults in proportion to their GDP to the total Euro zone GDP.

 

[Michael]

Same reason you chose to live under laws that limit what you can do. - I.e. there is a net benefit to you.

I don't recall being given a choice.

Even with all it is and will cost Germany, the Euro is a net benefit to the Germans. Go here to see why: http://www.sciforums.com/showpost.php?p=2863290&postcount=82 Once there were 13 dis-joint states. Each with banks printing their own money - that made inter state commerce difficult - For example, If a man rode his horse from Florida to DC, he had to carry gold coin to pay for his overnight stays in hotels - good target for robbers, so tried to avoid that. I.e. Florida tried to be a closed economy. It is easy to prove that trade benefit all. If you don't like proofs, just take it to the extreme - Let a city build a wall around its self - not be part of a greater economy, and see how fast it descends into economic hell. Basically it is a question of scale - Cheaper to produce some items on large scale and trade what you don't need for items others making those items on a larger scale than they need. Again see this in the extreme - let Michigan build its own airplanes - to hell with Boeing. A common currency facilitates trade - removes the foreign exchange risk - a cost.

I don't understand your wall analogy. I'm not saying MI is going to build a wall around itself. Only that we should exit the Union and become a separate Nation. We can make things and trade with the rest of the Union much the same way any sovereign nations does. I don't see the big deal. We have a LOT of natural resources and I'm sure our economy would be much better off OUT of the Union than in. Firstly, we wouldn't be paying out the ass in taxes that do little to nothing to help us. Secondly, with a new currency (pegged to the Yuan at 6 to 1 we might actually be able to start manufacturing again

Is there something somewhere I missing? If so let me know because as it stands our state is DECIMATED. Have you seen Detroit? Flint?


Also, according to your analogy Singapore would have been much better off WITH Malaysia. It wasn't and it did very well for itself leaving and becoming an independent nation. Wouldn't you agree?


I never picked you for a Technocrat BillyT? Why? Why not let the Euro collapse and the monetary Union dissolve. Smart phones are more the better than paper currency and would instantaneously convert between French francs, German deutschmarks, Greek drachma, Irish punt, Italian lira, English pound sterling, etc...

 

[Billy T]

I don't recall being given a choice.

You have one now - I.e. go to the backwoods of Alaska, pan for gold, cut your firewood for the cold winters, etc. but I now understand that it is not social living you don't want, it is free from DC living in a smaller state, say the nation of Michigan, so we can drop this part of the discussion.

... We can make things and trade with the rest of the Union much the same way any sovereign nations does. I don't see the big deal. We have a LOT of natural resources and I'm sure our economy would be much better off OUT of the Union than in. Firstly, we wouldn't be paying out the ass in taxes that do little to nothing to help us. Secondly, with a new currency (pegged to the Yuan at 6 to 1 we might actually be able to start manufacturing again

Is there something somewhere I missing? If so let me know because as it stands our state is DECIMATED. Have you seen Detroit? Flint?

You would need, on smaller scale most of what the US government has. Post office, army, air force, dozens of regulatory agencies to prevent abuses (everything from local radio broadcasters interfering with each other to banks printing their own money to snake oil salesmen with cancer cure going door to door, an SEC, FDA, NIH, NBS (weights & measures standards), USDA (what level of pesticide can be on your apples, etc.), FBI's sophisticated crime investigation capacity, etc. for dozens of others you don't want to live without. )*

All of these state agencies in each of the 50 state, duplicating their abilities with different standards, and often conflicting adding to trade costs and reducing volume of production to make each unit cost more, (e.g. drug X legal in adjoining state but illegal in Michigan, salt allowed in jar of baby food not the same, etc.) would make 50 times more of what you don't want. Half of the US population would be at least as "unproductive" as you see DC is and cost much more. I.e. again it is question of economy of scale. Again going to the extreme makes this clear I.e. should Detroit have its on postal system, National Guard /army, FDA, bank regulators, etc.

The most economically scale for these essentials is a function of technology - in the middle ages the Michigan scale may have even been too big. City states were about correct. As transport and communications improved larger units were better. What is now Germany was earlier Saxony, etc. each with its government. For more than 100 years in what is now USA, there was separate states with little mutual trade and no technical ability for the creation of USA - each state with its own post office, standards of weights, lengths etc. was better as there was little trade between them.

Technology has now tied the world together for trade at least. The first elements of one world nation are appearing (world court, UN, common patent law, which US just adopted, rules of war (no poison gas etc), global internet and post office (stamp of any nation will get letter to any other) etc. Slowly as in the past the smaller units we call "nations" will be killed off by technology and better larger scale economics and regulations. (We see starts of that in "carbon credits", UN sanctions, etc. and international corporations.) It may take 1000 years, but nations will be part of history, just as most city states are now.

Basically I don't think we disagree - we are disagreeing about what is the most efficient/optimum size of the governmental unit to live under. What we think really does not matter - advances in technology will eventually (long time from now) make one world government the best, with finally an end to the cost of wars. (France and Germany will not again try to kill each other’s soldiers** as the they did, even 1000 years before there was a France and Germany - I still remember the start of my Latin book: Cesar say (in English translation) "All Gaul is divided into three parts." (Two of which as I recall are roughly France and Germany now and they were mutually fighting back then)

Also, according to your analogy Singapore would have been much better off WITH Malaysia. It wasn't and it did very well for itself leaving and becoming an independent nation. Wouldn't you agree?

No - not what I am saying. I am saying that the drift of history, driven by technology advances, is to ever bigger and more efficient governmental units. Certainly, for historical reasons, some parts of the world cannot easily be included quickly with others in new larger governments.

Again, consider Germany. It is still struggling to digest East Germany. -Wages are lower in the East than the West, services are not as good, etc. but in a few decades more, one Germany will be much more than the sum of the two separate parts would be. More efficient (fewer sets of bureaucrats) less conflicts in regulations complicating mutual trade, no occasional wars between them, etc. Probably at present, the USA and Canada would both be better off if they were one political / economic unit. (Just the benefits of one common policy wrt to China would be a big advance.) Certainly, Europe will be as the USE, if they can get over their historical individual nations ideas.

Summary: Bigger governments are not perfect, but are more efficient as technology advances than a multitude of smaller ones duplicating the needed services and regulations. Ending war will be a huge advance for mankind, when one world government exists and its courts settle disputes.

-------------
* If you think the US has too many lawyers, wait until there are 50 different sets of laws and conflicting regulations.

** Thank god for birth control pills or without war Malthus would have been correct - Geometric growth does beat linear growth.

 

[Michael]

I suppose you are right, but, if MI can not be a separate nation, then I'd like to see more flexibility in the monetary unit - if anything, so that it isn't usurped by well connected Bankers. Imagine if we have lots of different units of measure for wealth that any simple mobile or chip could instantaneously convert between? Seems reasonable. I'm fairly certain MI would do better if we had our own currency, side by side, with the USD. Whether that's efficient or not is besides the point, as freepeople, the freedom to choose one's account of wealth should sacrosanct. MI should be able to mint it's own currency, let the people decide if they want to use it or not.

That aside, as I was reading your post I suddenly had this vision of Trantor, from Isaac Asimov's Foundation Series!

I had a slow upload so I put Trantor in a spoiler for anyone with a slow connection. I wonder if that has any effect on the webpage download? I mean, does it bring down the picture when the button is pressed or when the page is initially loaded? (actually, I just found a new pic, that one was too slow)

Spoiler

The Galactic Empire only had 40 Billion, here we are nearing 10!

 

[charles brough]

Back to the basic question of this thread. . .
It is my assessment that Greece will default on some of her loans but stay in the EURO.

What I think is happening is that the US Federal Reserve and the German government are working together to allow Greek borrowing costs to stay up and thus keep pressure on their governments to keep paring expenses but not allow the interest rates to rise to such a level that Greece defaults and leaves the Europe with Spain and Italy then next in line.

Their assumption is that the Euro can ride along this way for at least another year until all the Fed created increase in money kicks in and the US recovers, thus lessening the threat to the Euro and leading to a European recovery---and a severe inflation down the road.

brough
http://civilization-overview.com

 

[Michael]

You're suggesting the US economy is going into recovery mode next year? I really can't see that happening.

 

[Billy T]

looks like the "bond vigilantes" are dooming Italy too:

"... The Italian government sold €3.5 Billion in 3-year 2014 bonds at a gross yield 7.89%, which was a massive leap from the rate of 4.93% it paid in late October. ..."

From: http://www.stateofthemarkets.com/re.../1/0/a31f7db3eac3b2d9248386c00f8fc7d8f85487a3

Can France be far behind? With its rating outlook already cut to "negative" and huge exposure (greatest of all) to Italy's debt.

 

[quadraphonics]

Imagine if we have lots of different units of measure for wealth that any simple mobile or chip could instantaneously convert between?

In the case that said "chip" doesn't cost you any money to do the conversion, that is equivalent to just having a single currency.

In the case that the "chip" demands a commission for converting, that is equivalent to the system of international currencies that we already have.

Moreover, there are already manifold "units of wealth" besides currencies (land, gold, big pile of guns and ammo), which can be freely (and often, quickly) converted between one another, and the local currency.

I'm fairly certain MI would do better if we had our own currency, side by side, with the USD. Whether that's efficient or not is besides the point,

The question of efficiency is directly, immediately relevant to the question of whether some economy would do better under an alternative currency.

What, in your opinion, is the negative effect of current US monetary policy on MI? What would you want to see an MI currency do differently? Lower inflation? Higher inflation?

 

[Michael]

In the case that said "chip" doesn't cost you any money to do the conversion, that is equivalent to just having a single currency.

Are you sure it wouldn't be different? Use gold as an example. If people held their wealth in gold, it may end up costing them more or less over time as they spend their wealth purchasing things. Maybe on a week to week comparison it might not matter. But, over years, I think you'd start to see differences. These differences would act to adjust the Central Bank's policy (particularly on inflation). Who knows, maybe we wouldn't have bailed out the banks?

In the case that the "chip" demands a commission for converting, that is equivalent to the system of international currencies that we already have.

That's true - except the fees make it unreasonable. I mean, I have bank accounts in 3 countries and the fee's mean I only use one when I NEED that currency in that country.

But, let's suppose technology made it nearly free. Much like our communication is at present (and some online websites offer free conversion). All you'd need is an internet. At the present the banks make money on you exchanging your money from one currency into another. However, imagine if that were free. Well, maybe not "free" but was part of your internet or 3G plan. So cheap as to be no different that this conversation. Essentially, a free service.

Moreover, there are already manifold "units of wealth" besides currencies (land, gold, big pile of guns and ammo), which can be freely (and often, quickly) converted between one another, and the local currency.

Yes, true, but it's difficult at the present to convert between these different currencies AND there's also some odd laws regarding counterfeiting on the books in the USA that may make some illegal. That guy who sold Liberty Dollars recently went to prison didn't he?

The question of efficiency is directly, immediately relevant to the question of whether some economy would do better under an alternative currency.

Yes, and that's one the market could answer. I mean, it's efficient if you eat protein-carbohydrate-sludge too. We can efficiently feed you little worker bees so you can get back to it... right? Ohhhh, but, efficiency be damned, you'd prefer to eat steak and fries!

So? What's the answer?

The Market!

If people WANT alternative currency, and it's legal, then they should have a chance to use one, two or more. Efficiency isn't the only reason why people participate in markets.

What, in your opinion, is the negative effect of current US monetary policy on MI? What would you want to see an MI currency do differently? Lower inflation? Higher inflation?

As soon as NAFTA came in there was a huge sucking sound of all our manufacturing jobs leaving the state. We can not compete with currencies that are much much much lower than our own in addition to all the legal red-tape here (much of it Federal). Why are all the manufacturing jobs moving to China and SE Asia? Do they work that much more efficiently? No way. They're currency is so cheap. They have no pollution laws. It's all staked against the MI worker.

Well, our state is decimated and it is within our legal right to leave the Union. At the very least, we should immediately start printing MI Wolverine Backs. Pegged at 1MID to 10USD. Lets see what happens from there. Lets see how the "All Knowing" Market works then. When we're cheaper than the Chinese. Who knows, someone may even want to build a factory here. Why not run the experiment? It isn't going to get any worse, I can pretty much promise you that.

 

[Billy T]

"... Vice-Foreign Minister Fu Ying said on Friday:
"The argument that China should rescue Europe does not stand, as reserves are not managed that way," Fu said. She stressed that China's $3.2 trillion in foreign reserves should be managed under the principles of "safety, liquidity and proper profitability."

"China's purchases of European bonds, International Monetary Fund bonds and US bonds are also based on those principles,"* Fu said. ... "Foreign reserves aren't domestic income or money that can be disposed of by the premier or finance minister," Fu said. "Foreign reserves are akin to savings, and their liquidity and safety should be ensured."

Since the outbreak of the European financial crisis, China has increased its imports from the continent, with trade volumes up 20 percent over last year, Fu said. "China is not absent from international efforts to rescue Europe. It has been a positive and healthy participant," Fu said."... "

From: http://usa.chinadaily.com.cn/business/2011-12/03/content_14207047.htm

Billy T comment:PS - Don't count on much from Brazil either.

* Also US's low interest bonds (30 year's at 3% or less!) and declining purchasing power of the dollar makes the US's Treasury bond a lousy investment, which China is trying to stop making (buying gold and oil under long term paid up front contracts and farm lands, etc.

 

[Billy T]

They learn early now days:

“Following the EU Summit on 9-10 December, Fitch has concluded: That a 'comprehensive solution' to the eurozone crisis is technically and politically beyond reach. Despite positive commitments by EU leaders at the Summit, notably the decision to accelerate the creation of the European Stability Mechanism (ESM) and to place less emphasis on private sector involvement (PSI)*, the concerns held by Fitch prior to the Summit remain pressing and have not been materially eased by the Summit outcome... Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit commitment from the ECB** to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States (EAMS). "

* Billy T comment:
First the private lenders were to take a 25% hair cut, then a 50% hair cut, then a 75% hair cut. Finally it dawned on the EU leaders that this might discourage them from making more and badly needed loans. Leaders with such foresight, sure inspire confidence they know what they are doing.

** I think the ECB has decided the best future for Germany and about 5 other responsible governments is for the Club Med members of the Euro union, to drop out and bake in the Med's sun. I.e only modest buying of their bonds to make their collapse a little more orderly - give time for the stronger European banks holding Club Med bonds to prepared for their losses.

If this is the case and one is willing to hold Euros for several years, they probably will be a good investment if they drop to parity with the dollar. Once the iresponsible govenments are out of the Euro, Germany will not have he great export advantage they gave - i.e. the Euro will be a strong valuable currency - As dollar will still be in decline long term, in 4 or 5 years it may take 2 (or more) dollars to buy the strong new Euro. Who would think that crazy idea? - me.

Problem soon to come to economy near you:

Just Euros or gold coin, please.

 

[Michael]

The banks that made the irresponsible loans will need to be liquidated and sold off. Private investors will need to loose their asses and can at least make a small contribution to the economy by doing entertaining swan-dives off their balconies. Crooks.... errr... Bankers (like Corzine) will need to be arrested, all of their personal wealth confiscated and used to reimburse the investors whom they stole money from (yea, with a corrupt court and political system you can legally steal money - as any third bit dictator could tell you). Finally, the debt must be liquidated.

It is incumbent on every generation to pay its own debts as it goes.

 

[Billy T]

European Central Bank loaned 489 billion euros to 523 banks for an average of three years, marking the central bank's heftiest infusion of credit in the history of the euro. This initially helped the Euro but as was more than market thought the banks needed (I.e. banks were weaker than thought or in greater need) these gains of Euro wrt dollar vanished.

ECB is helping the European banks more than the sovern funds it seems. Yet Spain sold bonds at a very much lower interest rate yesterday so someone is helping them too - I just worry it is the FED buying more likely to be bad paper.

 

[Billy T]

"... As the euro-zone debt crisis intensified in recent months, at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire.

That, the banks quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. ..." From: http://online.wsj.com/article/SB10001424052970204552304577117003072894554.html

Like the boy scouts say: "Be prepared."

 

[Billy T]

Hungary may beat Greece to default:

“… Hungary appears to be the latest country to be affected by contagion. A Hungarian bond auction failed Thursday morning as the country’s treasury rejected all bids for a sale of 3-year debt. Hungary’s 3-year bond was trading above 9.3% at the time of the auction. Recall that Hungary's debt was downgraded to junk by S&P and Moody's last week. Reports indicate that this bodes poorly for Austrian banks, which are exposed heavily to Hungary’s sovereign debt. …”

From: http://www.stateofthemarkets.com/re.../1/0/76cbd12e9d8d13b9d806b71e8dad97ba2a1ff802

I.e. via the Austrian banks, Hungary may "blind side" the effort to save the full 17 Euro nations as they focus on Italy and Greece.

 

[Billy T]

Most think yes. What follows? A plausible case can be made for a gold backed Dracma, GBDs, I think, because:
(1) with Greece´s history of abuse of fiat money (nearly as bad as the US´s) the paper fiat only Dracma is not with value (except in the toilet).

(2) Greece has so little gold, I think, the people would work for annual salaries of a few ounces of Gold. They would live like Chinese did a decade ago - work long hours in sweat shops making products for export. Thus, like China of old, their exports would boom - just what Greece needs.

Fact that Greece has little gold only set the ratio of grams of gold to the million Dracma note, which might be in circulation. Can Greece back a new Dracma (of very little value - perhaps a few thousand Dracma notes will buy a one sheet newspaper) with Gold or silver? If not what do you think will happen, after default in Greece?

 

[Michael]

Today I heard whispers of Germany being OK with Greece leaving the club.....

Who insured all those Euro-trash bonds? I believe it was American banks....